Someone in a corporation who is mandated to make financial decisions need to engage in capital budgeting process. Obviously, capital budgeting process requires you as the financial controller or corporate planner to determine which capital projects to be undertaken. So what is capital budget? In layman term, these are projects which will affect the company financially in the long run, or more specifically they will impact your company future earnings and the forecasted cash flows usually spread over one year.
From a shareowner point of view, capital projects are aim to increase our wealth. Capital projects that cost money and doesn't bring value to shareowners are merely inreasing the company size. Imagine a person that eat alot (capital) and growing fat (company size) but doesn't really bring any significant good to the person (value).
Put it simple, capital budgeting process have 4 steps:
1. Idea generation
2. Analyzing project proposals
3. Create the enterprise wide capital budget
4. Monitor investments and analyze target-actual variations
Argh.. getting sleepy and too lazy to type. Continue next time when I got mood on this topic :p
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